Estate planning for blended families

As a member of a blended family you need to pay careful attention to how your estate is structured to avoid inadvertently disinheriting your children.

Blended families are families where some or all of the children in the family are not the natural or adopted children of both spouses or common-law partners. Determining how an estate such as this should be structured is more complicated since there are competing interests between the new spouse and any children from a previous relationship. Many blended families do not structure their estate plan properly, with the result in many cases being that one branch of the family receives the entire estate, with the other branch of the family receiving little or nothing.

How can this happen? Many individuals don’t customize their estate plan properly and attempt to make things “simple” by placing all their assets in joint ownership with their spouse with a right of survivorship (not applicable in Quebec), or designating their spouse as the direct beneficiary of their RRSPs, RRIFs, TFSAs and insurance (not applicable in all cases in Quebec). The other problem is the use of “standard” wills, which usually indicate that upon the death of the first spouse, everything is to go to the survivor.

If an estate plan is structured so that everything is left to the surviving spouse, then the spouse who dies first will not have any control over whether or not their children will receive any part of their estate. In many cases, the surviving spouse does not choose to disinherit their step-children, but it has still happened inadvertently. If, for example they die without a will, all of their assets pass only to their children, not their step-children. If you want to ensure that the children of both spouses will receive part of the combined estates, a standard will may not be appropriate. Here are some possible options.

Dividing the assets between the spouse and children

One option may be to leave a portion of your estate directly to your spouse, and leave different assets directly to your children, as opposed to leaving all of your assets to your surviving spouse. However, this is sometimes more difficult to do than people realize, due to the fact a surviving spouse may have rights under various provincial statutes, including the ability to make an application for dependant’s relief (or wills variation, if you live in British Columbia) or an application for a division or equalization of family property.

In fact, it is relatively difficult to disinherit a spouse, which is why it is important to ensure your will is properly structured, and to the extent possible, your spouse should waive any rights he or she may have to challenge the distribution of your estate. This type of planning should not be undertaken without the assistance of a lawyer who has extensive estate planning experience.

Using life insurance to satisfy all beneficiaries

There are those who do not have sufficient assets to leave enough to their spouse to satisfy any potential family property or dependant’s relief claims, yet still leave enough for their children. In this case, it may be simpler to leave the entire estate to the spouse and purchase a life insurance policy for the children. This will help to ensure each party will receive the desired amount and be free to use their inheritance as they see fit. This is usually the most simple and practical solution, and the option most frequently recommended.

Speak to your IG Consultant to make sure your estate is structured in a manner that considers the interests not only of your new spouse but your children as well.

Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant. Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial Services Firm). Insurance license sponsored by The Great-West Life Assurance Company (outside of Québec).

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